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U.K. Shale Production to Take Up to 5 Years to Start

(Corrects story published on Nov. 9 to show Eric Vaughan’s position in Cuadrilla to chief operating officer.)

Producing shale gas on a commercial scale in the U.K. will take as long as five years as explorers get to grips with local geology.

“Until we have the chance to explore more, to know more about the geology of U.K. shale, we can’t do much about it,” said Richard Smead, director in the energy practice of Navigant Consulting (NCI), who’s assesed the performance of U.S. fields. “Plus, the government has to find a way to share the benefits of shale gas exploration with local communities and landowners.”

The Chancellor of the Exchequer George Osborne has promised tax breaks to encourage the development of shale reserves to replace aging gas fields in the North Sea. Politicians are looking at the U.S., which became the world’s largest gas producer after drillers used pressurized water, sand and chemicals to force fuel from shale rock.

Explorers need to drill multiple wells before they can assess how much gas shale rock in the U.K. will yield and whether recovery rates will match the U.S., Nick Riley, head of science policy at the British Geological Survey, said yesterday at an industry conference in London.

“From the talks I’ve had with companies, they need to drill between five to seven wells to feel what’s the potential,” Riley said. “It will certainly take a number of years because of all the different rules and regulations, it will never go as fast as in the U.S.”

Resume Exploration

Energy Minister John Hayes said last month the U.K. plans to allow companies to resume shale gas exploration this year to take advantage of “an exciting opportunity.” Exploitation of the U.K.’s shale-gas reserves may meet 10 percent of U.K. demand for more than 100 years, according to the Institute of Directors.

Exploration in the U.K. was supended after drilling by Cuadrilla Resources Ltd. in northwest England caused two small earthquakes last year. The Department of Energy and Climate Change is completing an assessment into the impact of shale drilling. Hydraulic fracturing, or fracking, the technique used to get gas out of shale rock, has been criticized by environmental campaigners, who say it risks polluting water.

“The good news is that we know there is a lot of gas, that the shale is thick and that we operate in a high-price environment,” said Andrew Austin, chief executive officer of IGas Energy Plc. (IGAS) “What we need to see is the rate at which it flows.”

The company has appointed the investment bank Greenhill & Co. (GHL) to help find an investor in a shale discovery in the Bowland Shale prospect in northwest England and expects to announce a partner by the end of the year.

Open Fissures

Cuadrilla, which estimates it has more than 200 trillion cubic meters of shale gas beneath its acreage in the Bowland, said it is still at the phase of analyzing “if it’s economically viable to drill a well or not,” said the company’s chief operating officer, Eric Vaughan. “The regulation here is stricter than in the U.S.”

Companies with licenses in areas possibly holding shale-gas resources in the U.K. include IGas, Dart Energy Ltd. (DTE), BG Group Plc (BG/), Celtique Energie Ltd. and Reach Coal Seam Gas Ltd., according to the department of energy.

Chancellor of the ExchequerOsborne announced on Oct. 8 possible tax breaks for shale gas, “so that Britain is not left behind as gas prices tumble on the other side of the Atlantic.”

To contact the reporter on this story: Roxana Zega in London at rzega@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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